AbbVie cools on $ 55 b Shire deal after US tax changes
Friday, 17 October 2014 00:00
Reuters: US pharmaceutical company AbbVie said it was reconsidering its $55 billion takeover of Shire in the wake of US government moves to curb deals designed to cut taxes, wiping as much as $13 billion off the London-listed firm’s stock price.
Chicago-based AbbVie said late on Tuesday it was responding to the US proposals which aim to make it harder for American firms to shift their tax bases out of the country and into lower cost jurisdictions in Europe.
AbbVie’s move for Shire, a leader in drugs to treat attention deficit disorder and rare diseases, was announced in July amid a spate of similar takeover deals in the pharmaceutical sector.
It proposed creating a new US-listed holding company with a tax domicile in Britain, which applies low tax rates to patent income and has passed laws that make it easy for companies to shift profits into tax havens.
The news hammered shares in Shire, sending them down 23%, to where they were before the deal talks emerged in June.
Shares in larger rival AstraZeneca, which had rebuffed a $118 billion takeover bid from US drugmaker Pfizer Inc, fell 2.9%.
AbbVie said its board will meet on Monday to consider the impact of the US Department of Treasury’s proposed unilateral changes to tax regulations announced last month, and to also consider whether to withdraw or modify its recommendation on the Shire deal.
Shire urged AbbVie to push ahead, pointing out that the US drugmaker might have to pay a breakup fee of $1.64 billion were it to renege on its recommendation for the deal to shareholders.
“The board of Shire believes that AbbVie should proceed with the recommended offer on the agreed terms,” Shire said in a statement. And the British drugmaker waived a requirement that AbbVie give it three business days’ notice before holding the board meeting.
AbbVie’s second thoughts on the deal surprised Shire investors, coming just weeks after AbbVie chief executive Richard Gonzalez, in the wake of the Treasury proposals, told employees of both companies he was “more energized than ever” about the transaction.
Moreover, tax advisers had said the Treasury measures were unlikely to significantly impact most inversion deals.
By domiciling the combined group in Britain, AbbVie would be able to cut its 22% tax rate to about 13% for the new company. Besides the tax advantage, Gonzalez said AbbVie was attracted to Shire’s portfolio of lucrative drugs to treat rare diseases and other medicines in development.
Buying Shire would also reduce AbbVie’s reliance on arthritis treatment Humira, the world’s top selling medicine, whose $13 billion in annual sales accounts for more than 60% of company revenue. Although Humira’s US patent lapses in 2016, AbbVie hopes it will take years for rivals to develop generic formulations.
The number of tax-inversion deals, particularly in healthcare, have surged in the past year, putting pressure on the Obama administration to clamp down on corporate deals aimed at lowering tax bills.
The US Treasury proposed changes to tax regulations that would limit tax inversion, including a prohibition on “hopscotch” loans, which allow US companies to access foreign cash without paying tax in the United States.